Banks to opt for liquidation if bid prices are low: SBI

The first set of 12 large corporate defaulters identified by the central bank in June last year.

Of the 12 accounts, so far, just two accounts — Bhushan Steel and Electrosteel Steels — have managed to get a buyer for their assets.

New Delhi: Lenders won’t hesitate to push insolvent firms into liquidation if potential buyers try to suppress prices under India’s bankruptcy process, the country’s largest lender State Bank of India (SBI) has said.

“It is important that we give a message that if potential bidders are trying to suppress the values, then banks are not going to accept it,” Rajnish Kumar, SBI chairman, said in an interview to Bloomberg TV.

The proposed resolution plans must either bring value to the enterprise or a meaningful recovery for creditors. Lenders would be keen to find a resolution plan for each stressed firm if the enterprise is fundamentally viable, Kumar said.

If bidders or the indebted firm “cannot service even 5 per cent or 7 per cent of outstanding credit obligations, then I don’t see any reason for reviving each and every enterprise,” he said. “If the recovery could be more than 25 per cent, then resolution is always an option.”

However, legal experts differed with the SBI chairman. Rajesh Narain Gupta, managing partner, SNG & Partners said, “If a company has intrinsic value then resolution is the best option.”

“However, if there are no takers then it is advisable to go for liquidation to at least recover what is best possible and to create enough deterrence for defaulting borrowers. At times banks may have to take 25-40 per cent haircut but a company may be revived in a staggered manner for the benefit of investors, management, employees and even for creditors. So, to expect 25 per cent recovery for the choosing resolution path may not be a fair proposition,” Gupta said.

It has been 16 months since the Insolvency and Bankruptcy Code was rolled out but has seen more liquidation cases then resolution of non-performing assets. The BJP government had made tall claims that IBC will help banks to recover Rs 4 lakh crore but analysts gave said that lenders are likely to take 60 per cent haircuts for most accounts referred to IBC

The first set of 12 large corporate defaulters identified by the central bank in June last year to initiate IBC own banks a whopping Rs 3.12 lakh crore showed data released in the pre budget Economic Survey 2017-18.

Of the 12 accounts, so far, just two accounts — Bhushan Steel and Electrosteel Steels — have managed to get a buyer for their assets. The balance 10 accounts have not managed to find a buyer, under the IBC guidelines.